Market Report

Market Report: Melbourne, Australia

Over the last 10 years the Melbourne hotel market has recorded solid performance levels with occupancy consistently in the 80s and with ADR recording moderate increases year-on-year.

The market has a reputation of having been able to overcome supply growth in the past through its strong year-round events calendar and it is with this in mind the industry is confident that the current burst of hotel supply additions will be able to be successfully absorbed without causing any major stress to the market.

This latest report by Damien Little, Horwath HTL Asia Pacific, provides a break down of where new supply additions will be located, as well as a break down by class so as to provide a greater insight as to the potential impacts of new supply additions on the Melbourne hotel market.

Hotel Supply Outlook
Melbourne is set to experience significant growth in hotel room supply, with 88 projects potentially adding 18,708 rooms by the end of 2023. However, when weighted for the likelihood of completion, this number reduces to 10,381 rooms. Approximately 6,000 rooms are currently under construction across the city. 

Projected Supply Growth (2019-2023): 

  • 2019: 1,971 rooms (5.6% growth) 
  • 2020: 3,037 rooms (8.4% growth) 
  • 2021: 3,507 rooms (8.4% growth) 
  • 2022: 1,916 rooms (4.4% growth) 
  • 2023: 639 rooms (1.4% growth) 

By the end of 2023, Melbourne’s room supply is expected to increase to approximately 45,750 rooms. The likelihood of future projects proceeding may decrease as supply increases, potentially reducing the total volume of new supply entering the market. 

Likely Supply vs. Potential Supply 

  • 2019: All identified supply (15 projects, ~2,400 rooms) is considered 100% likely, as these projects are already under construction or have opened. 
  • 2020: Likely room supply is 79.3% of total identified supply, representing about 3,250 rooms from 26 projects. 
  • 2021: Only 39.5% of rooms are likely to proceed (34 projects). 
  • 2022: 45% of rooms are likely to proceed. 
  • 2023: Only 25% of rooms are likely to proceed. 

Distribution of Supply by Area 

  • CBD, Southbank, Docklands: Account for about 65% of all identified potential supply and 66% of likely future supply. 
  • SW CBD: Largest share of likely supply additions with 2,051 rooms. 
  • Southbank: Second largest with 1,698 rooms but only 25% under construction. 
  • NE CBD: Relatively high share with 58% of future additions under construction. 
  • Docklands: Expected to see the largest Compound Annual Average Growth Rate (CAAGR) at 11%. 

 Current and Future Estimated Supply by Area (2023): 

  • SE CBD: 6,383 rooms in 2018 to 7,081 rooms in 2023 (2.1% CAAGR). 
  • NE CBD: 1,114 rooms to 1,748 rooms (9.4% CAAGR). 
  • SW CBD: 4,143 rooms to 6,194 rooms (8.4% CAAGR). 
  • NW CBD: 2,065 rooms to 3,133 rooms (8.7% CAAGR). 
  • Docklands: 996 rooms to 1,711 rooms (11.4% CAAGR). 
  • Southbank: 4,094 rooms to 5,792 rooms (7.2% CAAGR). 
  • Inner Suburban: 6,724 rooms to 7,617 rooms (2.5% CAAGR). 
  • Suburban: 10,310 rooms to 12,934 rooms (4.6% CAAGR). 

 Supply by Class 

  • Upper Upscale: Largest likely supply addition at about 3,300 rooms (43% under construction). 
  • Upscale: Just under 2,500 rooms (30% under construction). 
  • Upper Midscale: 1,853 rooms (41% under construction). 
  • Midscale: 843 rooms (38.4% under construction). 
  • Luxury: 1,128 rooms (30.9% under construction). 
  • Economy: 68 rooms (1.1% CAAGR). 

Market Outlook
Despite the significant increase in supply, the medium- to long-term outlook for Melbourne’s hotel market remains positive. Forecast demand growth at a CAAGR of 3-4% aligns with historical growth levels. Melbourne’s ability to absorb new supply while gradually increasing ADR supports an optimistic market outlook. 

 


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Market Report: Melbourne, Australia
Hospitality
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